Central Bank Releases New Monetary Policy Statement

Bassyonni

ago 2 hours

The European Central Bank (ECB) recently announced its monetary policy decisions during a press conference in Frankfurt. Christine Lagarde, President of the ECB, and Luis de Guindos, Vice-President, outlined key updates regarding interest rates and economic forecasts.

Central Bank Releases New Monetary Policy Statement

On December 18, 2025, the ECB’s Governing Council decided to maintain the three primary interest rates without change. This decision aligns with their ongoing strategy to stabilize inflation around the two percent target in the medium term.

Inflation Projections

The updated Eurosystem staff projections indicate the following average headline inflation rates:

2025: 2.1%
2026: 1.9%
2027: 1.8%
2028: 2.0%

Excluding energy and food, inflation is projected as follows:

2025: 2.4%
2026: 2.2%
2027: 1.9%
2028: 2.0%

Economic Growth Outlook

The ECB anticipates stronger economic growth, primarily driven by robust domestic demand. Growth rates have been revised as follows:

2025: 1.4%
2026: 1.2%
2027: 1.4%
2028: 1.4%

In the third quarter, the euro area’s economy recorded a growth of 0.3%. This growth was attributed to increased consumption, investment, and a rise in exports, specifically from the chemicals sector. The services sector played a pivotal role in this growth trend.

Labour Market and Employment

As of October, unemployment stood at 6.4%, nearing historical lows. Employment grew by 0.2% in the third quarter. However, labour demand has cooled, with job vacancy rates at their lowest since the pandemic began.

Inflation Trends

Overall annual inflation has remained stable, recording 2.1% in November. Key factors include:

Energy prices fell by 0.5% compared to the previous year.
Food price inflation was recorded at 2.4% in November.
Excluding energy and food, inflation remained steady at 2.4%.

Future inflation is expected to decline temporarily due to the phase-out of past energy price increases. Projections indicate that inflation would average below 2% throughout 2026 and 2027, returning to target levels by 2028.

Risk Assessment and Financial Conditions

The current economic landscape poses several risks, including ongoing geopolitical tensions and the potential impact of trade fluctuations. The ECB emphasizes the importance of strong public finances and strategic investments to bolster the euro area economy.

Financial markets have shown increased rates, but the ECB reports stability among banks concerning capital and liquidity ratios. However, ongoing geopolitical uncertainties present potential threats to financial stability.

Conclusion

The ECB’s commitment to a data-driven, meeting-focused approach will guide future interest rate decisions. The bank remains flexible and prepared to adjust its monetary policy tools to ensure inflation stabilizes at its targeted two percent.